Bor­row­ers rush to fix loans as lenders cut rates


AF­TER be­ing squeezed out to the home buy­ing wilder­ness for years, the reg­u­la­tory and bank­ing mea­sures to dis­suade in­vestors (par­tic­u­larly from over­seas) are start­ing to have an im­pact and the door for first home buy­ers is open­ing.

Fig­ures out last week showed the pro­por­tion of first home buy­ers in the prop­erty mar­ket hit a four-year high in July, while their de­mand for loans for new houses hit a 38-year high.

That’s great. Now the key is to make sure the home you buy is one you can af­ford. Here are seven steps to make sure you’re on the right track:


CHECK CREDIT SCORE AND LOOK AT YOUR CASH FLOW Knowl­edge is power and you want to know how good a cus­tomer you will be for the fi­nancier if you bor­row from them. You can find out how you rate, free, at a num­ber of credit score web­sites.

The higher your score, the bet­ter the in­ter­est rate on your mort­gage you may be able to ne­go­ti­ate. Good credit can mean lower monthly pay­ments, so if your score is not great, con­sider de­lay­ing such a big pur­chase un­til you’ve re­paired your credit score.

Banks have an ad­ver­tised home loan in­ter­est and then dis­count that rate ac­cord­ing to how good a payer or cus­tomer you are. Hav­ing other prod­ucts, like in­sur­ance and credit cards, with the bank should also qual­ify for a dis­count.

As for monthly pay­ments, ex­perts say a good rule of thumb is to make sure the to­tal TIM McINTYRE

IN­TER­EST rate un­cer­tainty con­tin­ues to spook Aus­tralian bor­row­ers, who are rush­ing to lock in their home loans, en­cour­aged by re­cent fixed rate cuts by ma­jor banks.

De­mand for fixed home loans has hit a four-year high, Mort­gage Choice data shows, ac­count­ing for 31.05 per cent of all loans writ­ten in Au­gust. This was up from 29.63 per cent in July, ac­cord­ing to mort­gage Choice CEO John Flavell.

“De­mand is at its high­est level since De­cem­ber 2013, when fixed loans ac­counted for 33.06 per cent of all loans writ­ten,” Mr Flavell said. monthly re­pay­ment doesn’t con­sume more than 30 per cent of your take-home pay. If it’s higher, then have a plan to re­duce it over a short pe­riod.

Be­cause trad­ing houses is so ex­pen­sive (stamp duty, con­veyanc­ing fees, mov­ing costs) plan to be in this first home for at least 10 years.



Tech­ni­cally you can ne­go­ti­ate any de­posit with the ven­dor. Th­ese days it can be as low as 5 per cent and is of­ten con­tin­gent on the length of the set­tle­ment. A rule of thumb is the shorter the set­tle­ment, the smaller the de­posit can be ne­go­ti­ated.

But your fi­nancier may stip­u­late a higher de­posit so that you have greater eq­uity in the prop­erty to pro­tect the value of the home loan from any falls in prop­erty val­ues.

Just re­mem­ber if the de­posit is less than 20 per cent the fi­nancier will of­ten re­quire you to take out mort­gage in­sur­ance which will cost 0.5-1 per cent of the value of the loan each year.

So that dis­count on the in­ter­est rate from be­ing a good cus­tomer could be eaten up in in­sur­ance.



Even if you can af­ford the monthly pay­ment, be aware of hid­den costs. Buy­ing a home means stamp du­ties, le­gal fees, in­sur­ance and coun­cil rates that can add up to hun­dreds a month. For peo­ple who have been rent­ing, th­ese ex­tra costs can be a shock so make sure you have a bit of a slush fund. “Re­cently we have seen a num­ber of Aus­tralia’s lenders cut the in­ter­est rates charged on some of their fixed rate prod­ucts.

“Fixed rate home loans are now very com­pet­i­tively priced, which has made them more at­trac­tive to home­own­ers who are look­ing for re­pay­ment se­cu­rity.”

Queens­land ex­pe­ri­enced the high­est de­mand with 35.48 per cent of loans fixed; a giant leap from the 28.08 per cent recorded the month be­fore. South Aus­tralia was next with 34.4 per cent, while New South Wales saw 33.66 per cent of loans fixed.

Con­sumer com­par­i­son

And find out whether you qual­ify for a first home­own­ers grant or stamp duty con­ces­sions in your state.



Once you have the bud­get and have de­cided to take the plunge, de­ter­mine how much you can af­ford to spend and stick to it. com­pany Canstar has also seen a trend of cus­tomers look­ing for rate cer­tainty, with the num­ber of web­site users who have changed their search from vari­able to fixed rates in­creas­ing by 4 per cent since the pre­vi­ous quar­ter, ac­cord­ing to Canstar fi­nance com­men­ta­tor Steve Mick­en­becker.

“Banks have been us­ing fixed rate loans as their price lead­ers,” Mr Mick­en­becker said.

“Com­par­ing av­er­age pack­age rates for the ma­jor banks for res­i­den­tial prin­ci­pal and in­ter­est loans, the two-year fixed rate is 0.53 per cent be­low the vari­able rate … there is an im­me­di­ate sav­ing en­tic­ing the

Talk to the bank about a preap­proved loan up to a cer­tain limit be­fore house hunt­ing, which demon­strates to you the real es­tate agent and to ven­dors how much you can af­ford.

When you’re in a bid­ding bat­tle. a ven­dor will usu­ally take an of­fer from those with a preap­proval let­ter be­fore those with­out one. bor­rower to switch.

“With two year fixed rates … av­er­ag­ing 3.92 per cent and three-year fixed rates av­er­ag­ing Illustration: TERRY PONTIKOS

But you don’t have to spend ev­ery cent up to the ap­proved loan. It’s gen­er­ally good prac­tice to aim for a home that costs less than the max­i­mum ap­proved amount.



Al­ways re­mem­ber real es­tate agents are work­ing for the 3.97 per cent, fixed rates are al­low­ing the banks to mar­ket loans that are start­ing with a three.”

Lur­ing new cus­tomers with at­trac­tive fixed rate prod­ucts is a way for banks to safe­guard against the ef­fects of up­wards or steady vari­able rates on ex­ist­ing cus­tomer num­bers.

“With the cash rate sit­ting at a record low for 14 months, a fur­ther down­ward move is look­ing un­likely,” Mr Mick­en­becker said.

“This means the risk of a high cost early exit from the loan, if that be­comes nec­es­sary, is rel­a­tively low.

“Pick­ing the bot­tom is al­ways tricky, but rates ap­pear to be near the bot­tom of the cy­cle. It looks like the only way they’ll be go­ing in the medium term is up.”

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.